Question

Rae Services, Inc. provides healthcare diagnostics for patients with autoimmune diseases. At the end of their first year of operations, Rae Services account balances are shown in the adjusted trial balance shown below: Rae Services, Inc. Adjusted Trial Balance December 31, 2012 Cash Accounts receivable Supplies Prepaid insurance Equipment Accumulated depreciation--Equipment Accounts payable Common stock Retained earnings Dividends Service revenue Advertising expense Depreciation expense--Equipment Insurance expense Rent expense Salaries expense Supplies expense Utilities expense 176,000 140,500 4,650 2.400 85,500 3,500 68,000 255,000 130,000 67,000 206,475 2,525 3,500 1,400 9,600 165,000 1,460 3,390 662,975 662,975 a) Prepare closing entries.

Answer 1

a) Preparing Closing Entries:-

Closing Entries:- These Entries are prepared at the end of the Year. All temporary accounts are closed by transferred to the Income Summary Account which is also a temporary account and it transferred to Retained Earnings which is a Permanent Account which shows in Balance Sheet under Stockholders Equity section.

Rae Services Inc.

General Journal (Closing Entries)

December 31,2012

Date	Accounts Title and Explanation	Debit	Credit
December 31	Service Revenue	$206,475
	Income Summary		$206,475
	(To close Revenue Account)
December 31	Income Summary	$186,925
	Advertising Expense		$2,575
	Depreciation Expense- Equipment		$3,500
	Insurance Expense		$1,400
	Rent Expense		$9,600
	Salaries Expense		$165,000
	Supplies Expense		$1,460
	Utilities Expense		$3,390
	(To close Expenses Accounts)
December 31	Income Summary	$19,550
	Retained Earnings		$19,550
	(To close Income Summary Account)
December 31	Retained Earnings	$67,000
	Dividends		$67,000
	(To close Dividends Account)

b) Preparing Post Closing Trial Balance:-

Rae Services Inc.

Post Closing Trial Balance

December 31,2012

Accounts	Debit	Credit
Cash	$176,000
Accounts Receivable	140,500
Supplies	4,650
Prepaid Insurance	2,400
Equipment	85,500
Accumulated Depreciation, Equipment		$3,500
Accounts Payable		68,000
Common Stock		255,000
Retained Earnings, Ending		82,550
Totals	$409,050	$409,050

Note:-

* For Retained Earnings Ending see Statement of Retained Earnings and For Net Income see Income Statement.

c) Preparing Income Statement:-

Rae Services Inc.

Income Statement

For the Year Ended December 31,2012

Accounts	Amount	Amount
Revenues:-
Service Revenue	$206,475
Total Revenues		$206,475
Less:- Expenses
Advertising Expense	$2,575
Depreciation Expense, Equipment	3,500
Insurance Expense	1,400
Rent Expense	9,600
Salaries Expense	165,000
Supplies Expense	1,460
Utilities Expense	3,390
Total Expenses		($186,925)
Net Income		$19,550

d) Preparing Balance Sheet:-

Rae Services Inc.

Balance Sheet

December 31,2012

Accounts	Amount	Amount
Assets:-
Current Assets:-
Cash	$176,000
Accounts Receivable	140,500
Supplies	4,650
Prepaid Insurance	2,400
Total Current Assets		$323,550
Property Plant and Equipment:-
Equipment	85,500
Less:- Accumulated Depreciation, Equipment	(3,500)
Total Property Plant and Equipment		$82,000
Total Assets		$405,550
Liabilities and Stockholders Equity:-
Liabilities:-
Current Liabilities:-
Accounts Payable	$68,000
Total Current Liabilities		$68,000
Stockholders Equity:-
Common Stock	$255,000
Retained Earnings, Ending	82,550
Total Stockholders Equity		$337,550
Total Liabilities and Stockholders Equity		$405,550

e) Preparing Statement of Retained Earnings:-

Rae Services Inc.

Statement of Retained Earnings

For the Year Ended December 31,2012

Accounts	Amount
Retained Earnings	$130,000
Add:- Net Income	19,550
	$149,550
Less:- Dividends	(67,000)
Retained Earnings, Ending	$82,550